A daily chart is an important tool for a trader. It is a graph of a stock’s price movement during a day’s trading session. Common data points are depicted by a bar. It is a graph of several data points, where each one represents the stock’s price movement for a day of trading, which is also called as intraday. A daily chart focusses on the price movement of a stock and can show the price. While the price of a stock is the most important data point, a chart can also show the trading volume of the stock. It can also represent buying and selling orders at that particular time of the stock market.
How to understand charts?
These are main tools used for analysis by day traders to make profits intraday. It may typically focus on the price action of stock for a single day or the price moment for the specified time frame. It could be a week or even a month.
Candlestick charts are being used by most traders as they provide most information needed by the traders. The candlestick formations vary depending on the time period used in creating a chart. Price charts can be graphed by selecting a time frame. A day trader could trade-off of 15-minute, 60-minute charts to define the main trend and a five-minute chart to identify a short-term trend. However, the most commonly used timeframes are hour, day, week and month. A day trader may use intra-day along with a longer term to identify a trend and maximise their profits.
Intra-day charts graph the price movement of a stock from opening of markets to closing. The timeframes of a candlestick can be specified by the traders in their systems’ settings. The candlestick bars will form on a real-time basis for the trader to analyse.
A tick chart will work best for actually placing trades. A tick chart shows detailed information and provides potential trade signals.
Types of charts:
Line charts are used in the most common way in intraday trading. Bar Charts. Candlestick Charts. Hourly Charts. 15-Minute Charts, 5-Minute Charts, 2-minute Charts and Tick-Trade Charts.
Traders also use Tick charts. They are also called as bar charts. So, it’s based on time, i.e. that each bar will last a certain amount of time. A tick chart is used for basic activity like placing trades. Tick charts show the most elaborate information and reflect trade signals when the market is active. This chart also indicates low activity on the stock market.
A bar chart is one of the basic tools of technical analysis during day trading. In a Bar Chart, besides open, close, high, and low prices of stocks, other financial instruments are shown in bars. Bar charts are also called as OHLC charts (open-high-low-close charts). Bar charts are easier to read as traders read patterns more easily. In a bar chart, each bar is actually just a set of 4 prices for a given day, or some other time period, hence it is also called as a price bar.
A Candlesticks chart is a way of showing price movements on the NZX. There are candles in a chart refer to the information for a specific time frame. In a daily chart, each candle represents one day and that will show the market open, close, high and low of that day.
A candlestick chart gives information about the demand and the liquidity of stocks.
A candlestick chart reflects the actual market sentiment—whether the market is bullish or bearish.
Head and shoulders chart
These charts reflect ups and downs patterns in a stock market. The bulls and bears are constantly fighting with each other to take a higher place.
In technical analysis, this pattern reveals a specific pattern that predicts bullish and bearish trends. After a long bullish trend, the stock can rise the maximum and then fall. The second time it happens again. Once you see this type of movement in a stock, a trader can predict that the trend reversal is becoming a pattern and can short sell to gain money.
In technical analysis, this chart helps traders to discern a bullish and bearish trend and helps them take a decision on that basis.
There are range bars charts also, these are called as Nicolellis range bars. These were developed in middle of the 1990s by Vincente Nicolellis, a Brazilian trader and broker who spent more than 10 years in trading. Local markets were very volatile at that time so he developed bars that were very useful in using volatility to his advantage. He believed that price movement was very important in understanding volatility. So, he considered range bars and removed time from equation.
Range bars versus time-based
Range bars are different with a different purpose. They differ from the time-based charts because each new range bar is based mainly on price movement rather than the time expressed in minutes, hours, days, or weeks. Usage of range bars should depend on the kind of security being traded, price and the volatility in the market. Most traders are familiar with bar charts-based trading, but for using range bars there are three rules:
- Each range bar must have a high/low range that equals the specified range.
- Each range bar must open outside the high/low range of previous bar.
- Each range bar must close at either its high or its low.